Widening U.S. trade deficit raises double-dip fears

Posted July 13, 2010 at 11:29 a.m.

Don Lee | The U.S. trade deficit unexpectedly jumped in May, to the highest level since November 2008, prompting some analysts to sharply cut their economic growth forecasts for the just-completed second quarter and other economists to warn of rising risks of a double-dip recession.

The Commerce Department said Tuesday that the trade gap rose to $42.3 billion in May, up nearly 5 percent from April’s $40.3 billion. Economists had expected the May deficit to dip slightly to about $39 billion as oil prices were lower and retail sales fell that month.
But American purchases of foreign-made computers, machinery and particularly household goods, notably from China, rose  significantly in May. Analyst Diane Swonk attributed much of the surprising import gains to stockpiling by retailers and producers who fear a potential trade war with China.

“This is a distortion; it’s not reflective of domestic demand,” said Swonk, chief economist at Mesirow Financial in Chicago, referring to the higher deficit in May. She added that the report was disturbing because it points up the political and economic risks weighing on the economy.

Macroeconomic Advisers, a major forecasting firm based in St. Louis, slashed its estimate of gross domestic product growth in the second quarter by 0.8 point, to a weak 2.4 percent annual rate. GDP, a measure of total economic output, grew by 2.7 percent in the first quarter.

“Now, a rising trade deficit and continued weakness among regional banks threaten to derail the recovery,” said Peter Morici, a professor at the University of Maryland and former chief economist at the U.S. International Trade Commission, in a written analysis after  Tuesday’s report.

Other analysts worry that persistent high trade deficits are resulting in increased borrowing to finance purchases as well as a buildup of unsold domestically produced goods, which  could lead to reduced work hours or layoffs. Soaring deficits financed by cheap money from abroad contributed to the latest recession.

The recession sharply reduced the U.S. trade gap, with imports falling faster than exports. But in recent months, as the U.S. economy has turned the corner, the deficit has been widening again.

U.S. exports of goods and services in May increased at a solid pace, rising 2.4 percent from April, to $152.3 billion. Most of the gains came from stronger shipments of capital goods such as industrial machinery.

For the first five months, American exports were up 17.7 percent from the 2009 period, to $739.5 billion, helping fuel a rebound in the manufacturing sector. At that rate, President Barack Obama would have no trouble meeting his goal of doubling exports in five years in a bid to create more jobs.

But t U.S. imports — long outstripping  exports — have begun to expand at an even faster pace than exports. And that boosts the trade deficit, which subtracts from economic and job growth,.

In May, American imports of goods and services rose 2.9 percent from April, to $194.5 billion. This even as U.S. imports of crude oil fell by $2.2 billion over the month, as expected. But more than making up for that drop, imports of consumer goods jumped $2.6 billion in May from April, with big gains in pharmaceuticals, toys, apparel, televisions and furniture.

Through May, U.S. imports were up 21.4 percent from a year earlier, to $937.4 billion.

The trade deficit for the first five months of this year totaled $197.8 billion, up  38 percent from January through  May 2009.

In the first five months, the U.S. trade gap with Europe and Mexico rose  even faster. But China, by far, accounted for the biggest share of the overall U.S. trade deficit of goods this year, totaling $93.3 billion through May.

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  1. Anne July 13, 2010 at 3:23 pm

    Do you mean to tell me that only growing a huge government is not helping us?

  2. Barry W. Shook July 13, 2010 at 6:41 pm

    It’s been three months since I began to see the signs indicating that the USA is in a double-dip recessionary cycle. We’ve only been through the first dip so far; when I majored in Economics at college and studied the double-dip cycle, I learned that the second dip is far worse than the first.

    The second dip is the worse because so much of, and so many of our financial resources are drained or used-up trying to get out of the first dip. We no longer have the resources needed to recover the economy quickly. Like the guy in the movie said, “We ain’t seen nuthin’ yet.”